These 5 Fees Are Wrecking Your Retirement

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Imagine top scientists engaged in a serious discussion about whether the Earth is round or the moon is made of cheese. Silly, right? Now imagine investing professionals engaged in a serious discussion about whether investment advisory fees of 1.5 percent plus $750 a year on a $450,000 portfolio are too high. That's what I encountered in the Q&A section of BrightScope.com, a 401(k) ratings firm.

Some quick math tells us that this investor is shelling out $7,500 a year. These costs don't account for the underlying cost of the investments. Over 10 years, and assuming an 8 percent return that would have been earned had these fees stayed in the account, this investor will lose nearly $110,000 -- or almost 25 percent of the starting balance in the portfolio.

It's time to get real. High investment costs will wreck a portfolio. Here are five costs that are the most pernicious:

Advisory fees. Paying an investment advisor 1 percent or more annually almost guarantees below-market performance. Even the most talented advisers, over the long run, are unable to beat the markets by the cost of their services. For those looking for investment help, there are several cheaper alternatives. First, a low-cost mutual fund company like Vanguard offers investors advice on constructing a diversified portfolio. Second, there are low-cost and simple online tools that make investing a snap. For those considering a traditional fee-only adviser, forget paying 1 percent. While that may be standard, there are plenty who charge 0.5 percent or less.

Management fees. Mutual fund fees also eat away at a retirement portfolio. Low-cost index funds typically carry an expense ratio of 10 to 25 basis points. Actively managed funds can easily cost 100 basis points or more. Studies have shown that actively managed funds rarely beat the market over the long run. It's also impossible to predict which funds, if any, will beat the market in the future.

Transaction costs. The expense ratio doesn't include a mutual fund's cost to buy and sell shares. For actively managed funds, these transaction costs can be significant. John Bogle, the founder of Vanguard, estimates that transaction costs add an additional 50 basis points in costs to actively managed funds.

Commissions. While fee-only advisers don't earn commissions on the investment products they sell, commissioned brokers do. These fees typically amount to more than 5 percent of the amount invested. Commissions are in addition to the management fees charged by the mutual funds.

Unnecessary taxes. Actively managed funds often generate significant tax liability. While these taxes are of no concern in a tax-advantaged retirement account, they can represent a significant drag on performance in a taxable account. In contrast, index funds typically do far less buying and selling. The result is less taxable income and lower transaction costs.

Eliminating your mortgage is one of the best ways to make retirement more affordable because it removes a sizable monthly bill. While you'll still have to pay taxes and maintenance costs for your home, those expenses are likely to be a fraction of your mortgage payments.

Once your children are independent, you will likely no longer need a several-bedroom house in a good school district with a large yard that can be expensive to maintain. Consider downsizing to a smaller home in a less-expensive neighborhood, and add the proceeds of the sale to your nest egg.

Where you live plays a big role in how much you pay for food, taxes and a variety of other services. Moving to an area where the cost of living is significantly less could allow you to spend down your retirement savings more slowly.

If you and your spouse commuted to separate places each day, it is likely that you each needed a car. In retirement, you might be able to get by with one car, thus eliminating the insurance, gas and maintenance costs of the second vehicle. In walkable communities with good public transportation, you may even be able to get by without a car in retirement.

In retirement, income tax will be due on withdrawals from traditional 401(k) and individual retirement accounts, but you can space out your withdrawals to avoid a hefty tax bill in a single year. Prepaying income tax on some of your retirement savings using a Roth IRA or Roth 401(k) allows you to avoid a big tax bill in retirement.

Investing in high-cost funds reduces your return. Minimizing investment costs is especially important for retirees who are living off income from their portfolio. In this case, selecting the lowest-cost funds that meet your investment needs translates to more money in your pocket.

There are significant penalties if you withdraw money from your retirement account too soon or too late. There is also a reduction in benefits if you sign up for Social Security early, and a late enrollment penalty if you delay signing up for Medicare Parts B and D. Pay attention to important retirement deadlines to avoid paying more than you need to.

Health care is likely to be one of the biggest and least predictable costs you will face in retirement. But there are some things you can do to control your health costs. Consider purchasing a supplemental policy to Medicare to fill in some of the gaps and cost-sharing requirements traditional Medicare doesn't cover. Also, shop for a new Medicare Part D plan every year to make sure you are getting coverage for your medications at the best price.

Retirees have the luxury of being able to travel whenever they want. Traveling is often less expensive if you avoid major holidays and school breaks, and most tourist destinations will also be less crowded.

One of the major perks of growing older is getting discounts at movies, museums and restaurants. While some senior discounts are well-publicized and open to everyone old enough to have an AARP card, others are available only to those who ask. A little research can add up to big savings if you’re willing to admit your age.

Introduction to Retirement Funds

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Johnny Jay

Only the wise & enterprising investor can avoid all those fee's, commissions & charges by taking control of your own future. Learn how to invest yourself with those online brokerage firms like e-Trade; TDAmeritrade. There are others but slip my mine at present. It's as simple as opening a saving account at your local bank. Call them or send a e-mail asking for a sign up package. They will send you all forms & easy to follow instructions on how to open an On-Line brokerage acct. You first open the acct. by mailing the necessary forms then step #2 is to FUND the account. That is sending money that will be deposited into the money market acct. that will be attached to the broker acct. Once you have built a nice cash amount then you & only you choose which stocks to buy. They only charge a small commission of $7.99 to $10.99 per trade. The price varies with the different brokerage firms so check them all before you choose. I personally have ckecked them all & find that for the comm. of $9.99 per trade you get the best service from TDAmeritrade. The key here is the stocks you pick. Get the one's that pay a steady dividend on a quarterly basis and these dividends are either deposited into the money market acct. or if you choose to reinvest these dividends to buy added shares of that company for future income. They charge NO fee's to deposit these dividends or reinvest them for you. You even get interest (.01%) on your cash balance once that amount exceeds $1,000. I know it's not much but at least they are not charging fee's to maintain your account.Once you got your first buy of a stock on the books then it gets easier to deposit more money into the money market acct. for your next buy. As time goes by you will be surprised on how quickly your investment portfolio rises in value with these stock buys & dividends reinvested. Remember this is not a quick or fast system. I started over 27 years ago before the age of computers and online brokerage firms and have built a very comfortable nest egg without the help of all these companies that advertize to invest with them. All they want is your money for investing purposes where they make more money for themselves than they do for you. Oh sure, they give you a small increase in your holdings but most of the money they make goes in their pocket NOT yours.Once you can understand the process on how to invest yourself without the need all these investment firms the more money made will be kept by YOU.If you want more guidance on how to do this properly you can contact me via e-mail. vegasbaby4351@aol.com I don't want any money for my help. I just want to show good people who want to invest properly the correct way and will give you a list of various stocks that pay good dividends & are solid investments for the long haul. Remember, you will be controlling your own future without the help of these agents who just want to take your money & give you very little in return. The choice is yours.

Investing in the stock market is a calculated risk. Diversity is suggested.But really the best thing to invest in is you. Just spent $2,000 to have your A/C fixed. Instead you could have taken an adult ed course for $110 and fixed it yourself.Had a carpenter install some shelves for for $250.00 ? Could have done it yourself using $50.00 worth of tools and materials. Paid $99,00 for a dish of Coc Au Vin ? Take an adult ad culinary class and make Coc Au Vin for $3.00

And the best way to build wealth is don't spend it. Avoid risky ventures, most of them don't pan out.

At the end of the day, nobody will take care of your money better than you. I made the mistake years ago of investing with a big name company. I was charged a 5% commission on every transaction and was charged $250 every time for a semi-annual review. I was limited to investing in their family of funds and all were in the bottom third of the morningstar ratings. I finally wised up and am now in no-load index funds because no financial adviser can consistently beat the S&P 500 average. The company I was with is a heavy TV advertiser and has changed their name about three times. They have a well-known spokesperson and every time I see one of their commercials I want to throw a brick through the TV screen. But, it was my own damn fault. The old Dutch proverb applies "Too soon old, too late smart."

The cost of food and fuel is not included in the formula to determine the rate of inflation. Guess what two items constitute the biggest chunk of seniors' spending? Is it any wonder we're sinking further into hopelessness every time a new Social Security COLA is announced?

their will be no retirement today for anybody,you will work till your dead,you voted for a muslim clown n he taxed the hail out of all middle class,n let illegal immigrants "BREAK" into america to rob n kill americans.now keep working n shut up. !!!!